Why are these rules important?
Businesses need to understand how the changes to the VAT treatment of goods and services impact their business. Failure to do so could result in businesses being unable to import goods into the UK and EU member states; also, businesses may need to VAT register in member states in respect of sales of goods and the provision of services.
Penalties and interest charges could be imposed where the business fails to get the VAT treatment correct and / or fails to pay the right VAT at the right time.
What are the main changes regarding goods?
From 1 January 2021, goods moving into the Great Britain from member states will be treated as imports rather than acquisitions. Import VAT and possibly customs duties will be due when the goods are imported. This will either need to be:
- paid when the goods arrive
- deferred using a deferment guarantee, or
- accounted for in the VAT return for businesses using postponed import VAT accounting
An import customs declaration will also be required so there will be more customs formalities for businesses that only traded with EU member states before 1 January 2021 to content with.
Goods removed from Great Britain to member states will become exports rather than dispatches. Providing the relevant conditions are met the export can be zero-rated. However, the exporter will need to complete an export customs declaration which, if done in-house, requires specialised software.
Businesses in Great Britain can no longer take advantage of any EU simplifications, such as call off stock, triangulation and distance selling thresholds. As a result, the UK businesses may require a VAT registration in member states, and could be required to appoint a tax representative.
An Intrastat declaration in respect of imports is still required during 2021 for goods moving from member states to the Great Britain; both imports and exports will require Intrastat declarations in respect of movements between Northern Ireland and the EU.
What are the main changes regarding services?
From 1 January 2021, the UK is regarded as a non-EU country and subject to the rules relating to third countries. UK suppliers must consider whether the use and enjoyment provisions impact supplies of services made within the EU. Member states can legislate for use and enjoyment provisions individually so there is no common set of rules. This could result a VAT registration being required.
Any EU simplifications no longer apply to UK businesses.
UK businesses currently registered for the Union Mini-One-Stop-Shop (MOSS) must register for the non-Union MOSS in a member state or find some other means of circumventing the registration requirement.
UK businesses making supplies of financial services to the EU may be entitled to recover more input tax under the UK Specified Services rules.
What are the main changes for Northern Ireland?
Businesses moving goods between Northern Ireland and the EU need to use an XI prefix in front of their existing UK VAT registration number.
EU rules still apply to goods in Northern Ireland. Supplies between the EU and Northern Ireland are treated as intra-EU movements of goods and acquisition tax must be accounted for. EC Sales Lists and Intrastat declarations are still required.
Supplies between Great Britain and Northern Ireland are treated as imports or exports from a VAT perspective. Movements of own goods from Great Britain to Northern Ireland are treated as imports into Northern Ireland. However, Great Britain and Northern Ireland suppliers must charge VAT on goods that are exported to each other’s country. This VAT is normally recoverable on the importer’s VAT return.
Are there any other significant changes?
Businesses are no longer be able to use VIES to check whether UK VAT numbers are valid. However a UK equivalent of VIES for UK VAT registrations is in place.
UK businesses (with the exception of Northern Ireland) must use the Thirteenth Directive Refund system to claim back VAT incurred in member states from 1 January 2021. This is a paper-based system that is more laborious.
Are there any anti-avoidance rules?
Because the movement of own goods between Great Britain and Northern Ireland creates a VAT charge, partly exempt businesses may find that they are having to apply a VAT restriction to the same goods twice (ie once on original purchase, and again on removal to Northern Ireland). A mechanism is in place to correct such a double restriction; however, HMRC will be introducing rules to prevent this mechanism being used for avoidance purposes.